This excerpt taken from the LKFN DEF 14A filed Mar 16, 2009.
General. The committee’s decisions regarding each named executive officer are based, in part on the committee’s subjective judgment and take into account qualitative and quantitative factors, as will be set forth in the discussion below. In reviewing an executive officer’s compensation, the committee considers and evaluates all components of the officer’s total compensation package.
Corporate Performance. In establishing executive compensation, the committee measures Lakeland Financial’s performance compared to management’s and the board’s goals and objectives as well as to our peer group performance for financial institutions of comparable size and complexity. The committee believes that using Lakeland Financial’s performance as a factor in determining an executive officer’s compensation is effective in helping to align the executive’s interests with those of our shareholders. With that in mind, the committee focuses on performance versus key financial performance criteria, such as return on beginning equity, return on average assets, revenue growth, diluted earnings per share growth, capital adequacy, the efficiency ratio and asset quality. As part of the evaluation and review of these criteria, the committee will also take into account various subjective issues, such as general economic conditions, including the interest rate environment and its impact on performance, and how they may affect Lakeland Financial’s performance.
For purposes of peer analysis in assessing performance, Lakeland Financial generally considers peer groups that include commercial banks of similar asset size. The peer groups used in 2008 generally included financial institutions with total assets of $1.0 billion to $3.0 billion, with a focus on banks located in the central region of the United States. Given the ever-changing landscape within the banking industry, there is no specifically defined group of banks that are utilized for this analysis. The committee engaged Frederic W. Cook & Co., Inc. in 2008 to assess the effectiveness of the Company’s executive compensation programs. For comparative analysis, Frederick W. Cook & Co., Inc. compiled a market reference group of 20 publicly traded bank holding companies headquartered in the Indiana, Ohio, Illinois or Michigan, with median assets of $2 million. In addition, the committee reviews compensation survey data that is readily available to Lakeland Financial from industry sources such as the Indiana Bankers Association.
Other factors of corporate performance that may affect an executive’s compensation include succession planning consideration, realization of economies of scale through cost-saving measures, Lakeland Financial’s market share reputation in the communities which it serves, turnover level of employees, as well as less subjective performance considerations. In addition, the committee takes into consideration indirect and intangible business factors such as community involvement and leadership when reviewing executive compensation.
Benchmarking. In establishing the compensation of the named executive officers, the committee utilizes market data regarding the compensation practices of other financial institutions of a similar size and complexity. The committee believes that benchmarking is useful to stay competitive in the marketplace and for attracting and retaining qualified executives. While the committee believes that it is
prudent to consider benchmarking in determining compensation practices, it does not set strict parameters using this data. Rather, the committee uses benchmarking data to ensure that executive compensation is not inconsistent with appropriately defined peer organizations. Generally, the committee believes that the current executive management of the bank has established a track record of long-term performance pursuant to the compensation philosophy and objectives described above that warrant top quartile or better compensation among similarly situated financial institutions. Additionally, the committee will consider data from outside the peer comparison when reviewing compensation practices if that comparison identifies similarities, such as business-line focus and long-term operating and financial stability, which should be considered. For example, institutions with a similar focus on complex commercial lending may be considered by the committee. The peer groups used for comparative purposes in 2008 and for 2009 were generally comprised of banks with total assets of $1.0 billion to $3.0 billion, with a focus on banks located in the central region of the United States. In addition, Frederic W. Cook & Co., Inc.’s 20 bank holding company peer group was used to benchmark compensation.
Individual Performance. When evaluating an executive officer’s individual performance, the committee relies upon Mr. Kubacki’s assessment of individual performance, which considers the executive’s efforts in achieving his or her individual goals each year, managing and developing employees and the enhancement of long-term relationships with customers, if applicable to his or her position. The executive officer’s individual performance and/or individual contribution to the overall company performance depends, to a degree, on what steps are taken to increase revenues and implement cost-saving strategies and the outcome of such strategies. Each executive officer has different goals established that contribute to the long-term strategic goals of the company. Individual goals for executive officers are established by Mr. Kubacki in consultation with each executive officer.